Health data analysis firm ArborMetrix gets funding lift

Which is better to use on patients getting hernia surgery: A synthetic mesh patch that costs $140 or a biologic mesh made from pigskin that costs $22,000?

And which patch leads to higher infection and complication rates? Which gets patients out of the hospital sooner?

The surprising answers: No one knows, according to Michael Rosen, M.D., chief of general and gastrointestinal surgery at the Cleveland-based University Hospitals Case Medical Center and co-director of the hospital's Comprehensive Hernia Center.

ArborMetrix is expected to announce Monday that it has closed on a funding round of $8.3 million.

Rosen said the American Hernia Society has been using ArborMetrix software to combine data from 40 surgeons and about 700 patients since August, and will meet in March to begin devising standards of care and decide which procedures and devices best serve which kinds of hernias.

"There are 300,000 hernia surgeries a year, and there's no standard operating procedure. There are hundreds of meshes and thousands of procedures," he said. "For example, at the same hospital, for the exact same kind of hernia, one surgeon will use a $140 mesh. Another will use a $22,000 mesh.

"Sometimes a $22,000 mesh might be appropriate. But when? The answer is, we don't know. There's no data. The $22,000 mesh is used because it's had great marketing. About $500 million of them were used last year in this country. But it's marketing that drove that, not data from outcomes. Clearly, ArborMetrix is going to improve quality of care at a reduction in cost."

The round was led by RPM Ventures of Ann Arbor and joined by Ann Arbor-based Arboretum Ventures, which put up the $1.5 million in seed capital that launched ArborMetrix in 2011; the student-run Wolverine Fund of the University of Michigan's Ross School of Business; and the Ann Arbor-based Renaissance Venture Capital Fund, which usually invests in other VC firms but made an exception this time to invest in a specific company.

"This region has always been strong in health care IT, going back to Medstat in the mid-1990s, but granular, actionable data to improve health care has been the big challenge," said Chris Rizik, Renaissance Venture's CEO and fund manager, referring to Medstat Inc., which was sold to the Thomson Corp. in 1994.

"What they are doing is going to be front and center with everything that's going on with Obamacare. It's a really exciting company," he said of ArborMetrix.

The investment round also included the first investment from the new Detroit Innovate Fund I LP, a sister fund to the First Step Fund, both of which operate under the auspices of Invest Detroit and have been funded by the New Economy Initiative for Southeast Michigan.

The First Step Fund invests $50,000 in startup companies. Detroit Innovate is designed to invest much larger amounts to promising area companies and invested $300,000 in ArborMetrix. It has a goal of raising at least $10 million, including commitments of $5 million from NEI and $2.25 million from the Michigan Economic Development Fund.

Paul McCreadie

An idea for a company

Early in 2011, John Birkmeyer, M.D., a professor of surgery and chairman of surgical outcomes research at the University of Michigan Health System, approached Tim Petersen, a managing director at Arboretum Ventures he knew through playing tennis, about an idea he thought might turn into a business.

There was a crying need for better analytics to judge health care procedures and outcomes, he said, especially with the impending rollout of the federal Affordable Care Act. Arboretum decided to put in $1.5 million to develop a business plan, hire a few people and see if there was indeed a business there. Paul McCreadie, another managing director at Arboretum, was named chairman of the ArborMetrix board.

Other company founders are Justin Dimick, M.D., chief of the division of minimally invasive surgery at the UM Health System, and Doug Staiger, a Dartmouth College economist who had developed metrics for measuring the quality of hospital health care.

Since then, ArborMetrix has gathered Web-based, cloud-stored data from more than 200 hospitals and more than 5,000 doctors.

Blue Cross Blue Shield of Michigan helped ArborMetrix with proof of concept, that it could analyze data from hospitals to help define best practices; to correlate procedures with high infection and complication rates, and help lower costs by showing benefits or the lack thereof of certain procedures or devices.

The first joint effort between Blue Cross and ArborMetrix was to do a study on angioplasty, according to David Share, M.D., a senior vice president in charge of the Detroit-based insurance company's Collaborative Quality Initiatives program.

It began with data being shared by six hospitals in Michigan and now involves every hospital in the state that does the procedure. ArborMetrix is gathering and analyzing data for other Blue Cross collaboratives, including a bariatric collaborative, urological surgery collaborative, spinal collaborative and breast oncology initiative.

James Montie, M.D. — a professor of urology at UM and co-director of one of the Blue Cross quality initiatives, the Michigan Urologic Surgery Improvement Collaborative, made up of 32 urology centers around the state — said he hopes ArborMetrix data will help clarify a major issue in prostate care: what prostate tumors require surgery and which don't.

Meanwhile, he said, at least four academic papers on prostate care have either been published or are in the process, based on 18 months of ArborMetrix data involving 6,000 patients.

"It has surpassed our expectations," he said.

Through various surgical quality initiatives, Blue Cross Blue Shield has identified more than $85.9 million in cost savings statewide in two years of working with ArborMetrix, including a 10 percent reduction in mortality, 29 percent reduction in pneumonia, 33 percent reduction in cardiac arrest, 15 percent reduction in length of stay and 18 percent reduction in surgical-site infections, according to Share.

One result of data gathered from 36 hospitals in Michigan showed that a device commonly used in vascular surgery, inserting a filter to capture small blood clots, resulted in higher mortality rates and longer patient stays compared to similar surgeries conducted by doctors who didn't use the filter.

After vascular surgeons in the state saw the data and began ending their use of the filters, the mortality rate fell from three in 1,000 operations to one in 10,000.

"The project has been extraordinarily successful," said Share. "The company has shown that it has powerful tools to optimize patient care and outcomes."

ArborMetrix's customers include the American Association of Endocrine Surgeons, the American Hernia Society, the Pediatric Cardiac Critical Care Consortium and Atrius Health.

Brett Furst

Growth curve

In July 2012, as data was being compiled and customers were signing on, ArborMetrix was able to recruit Brett Furst, a 23-year veteran of the IT industry, as CEO. Most recently he had been a vice president at Covisint, a business unit at Detroit-based Compuware Corp. that managed large volumes of data collection and sharing for the automotive and health care industries.

Those metrics also drove fundraising for the current financing round, which will fund the hiring of developers, customer service reps and sales staff. The company, which moved into about 9,000 square feet in the former MLive headquarters on East Liberty Street in downtown Ann Arbor several months ago, employs 32 and plans to hire about 10 more by the end of the year.

Furst said the company plans on the $8.3 million to carry it until the second quarter of 2015, at which point the company should be cash-flow positive and able to fund future growth without further need of equity capital.

He said ArborMetrix grew revenue by 108 percent last year to less than $5 million, with projections of up to $10 million this year.

"We didn't start generating revenue until the third quarter of 2012, so revenue is still fairly modest, but we're on a significant growth trajectory," said McCreadie. "The rate at which we've gone from trying to decide if there was a business to getting customers and getting to market has been really quite remarkable."